RBI has scope to cut rates, feels IMF

But it tells advanced countries, especially the US Federal Reserve not to raise interest rates

GN Staff | September 4, 2015


#Imf   #rbi   #international monetary front   #reserve bank of india   #inflation  

While asking the central banks of advanced economies to "maintain supportive policies" and refrain from raising interest rates too quickly, the International Monetary Front (IMF) has said that there is room for the Reserve Bank of India to cut rates.

However, it said "while the faster-than-expected fall in inflation has created space for considering modest cuts in the nominal policy rate, medium-term inflationary pressures and upside risks to inflation remain."

The caution and advise are part of IMF report on Global Prospects and Policy Challenges being released ahead of G-20 meeting in Ankara, Turkey.

Earlier, IMF had been consistently demanding tight monetary stance in case of India, so in a way this is its partial shift of the policy advice. But, it balances the advise by warning against upside risks to inflation.

Though it did not give details of these risks, those may come from damage to rabi crops if monsoon does not progress well in September.

The RBI is widely expected to cut rates in its policy review later this month, or even earlier.

IMF said near-term growth prospects remain favourable and external vulnerabilities have decreased, but here also it cautioned against some macroeconomic imbalances.

It talked of balance sheet strains in the corporate and banking sectors. To tackle this, it prescribed that financial sector regulation be enhanced, provisioning increased, and debt recovery strengthened.

It said growth in India, one of the world’s largest commodity importers, will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices.

IMF's observation comes at a time when economic expansion in India slowed down to 7% in the first quarter of the current financial year against 7.5% in the previous quarter.

The multi-lateral agency said domestic demand in India is accelerating, underpinned by the collapsing commodity-import prices. Despite lower growth in India, it remains one of the fastest growing large economies along with China. This is when IMF said global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies.

Also, it warned that its earlier projections for economic growth of emerging markets and developing economies would face downward risks from rising financial market volatility, declining commodity prices, weaker capital inflows, and depreciating emerging market currencies.

Meanwhile, the IMF warned that risks to the global economy are mounting amid slowing growth in China, tanking emerging economies and unease over international financial markets.

In view of these challenges, the IMF urged the central banks of advanced economies to refrain from raising interest rates too quickly.

The IMF said the performance of many economies is again falling short of expectations.

It called for action to boost flagging growth rates and raise the medium-term performance of the world's largest economies from the current "moderate" level. Productivity growth in advanced economies has also been persistently weak, the fund noted.

The fund called on the United States Federal Reserve to "remain data-dependent" and not rush to raise interest rates since there has been "little evidence of meaningful wage and price pressures so far".

Amid the turmoil, Asian economies appear to be holding up and are doing "pretty well", IMF chief Christine Lagarde said on Wednesday while in Jakarta on a two-day visit.

"What has been demonstrated in the last few weeks is how much Asia is at the core of the global economy, and how much disruptions occurring in one market in Asia can actually spill over to the rest of the world," she said.

Despite external pressures and the slower pace of expansion in Asia, Ms Lagarde said "this whole region, in the world, is doing pretty well", and would continue to be a key source of global growth.

Comments

 

Other News

WAVES Summit: A Global Media Powerhouse

In 2019, at the inauguration of National Museum of Indian Cinema, prime minister Narendra Modi had expressed his wish to have a forum of global repute similar to the World Economic Forum, Davos, for India’s media and entertainment (M&E) industry. That wish became reality with the WAVES Summit in

India’s silent lead crisis

Flint, Michigan, was a wake-up call. Lead contamination in water supplied to homes in that American city led to a catastrophic public health emergency in 2014, which is yet to be fully resolved. But India’s lead poisoning crisis is ten times worse- larger, quieter, and far most devastating. Nearly ha

‘Dial 100’: A tribute to the police force and its unsung heroes

Dial 100  By Kulpreet Yadav HarperCollins, 232 pages, Rs 299  A wife conspires with her ex-lover to mur

India’s economic duality: formal dreams, informal realities

“Whatever you can rightly say about India, the opposite is also true.” – Joan Robinson In its pursuit of becoming a $5 trillion economy, India has laid significant emphasis on formalizing its economic architecture—expanding digital payments, mandating

Targeting root causes of cancer with green policies

The Budget 2025 was splashed across headlines with its innumerable numbers and policies, but lurking behind the balance sheets is a threat that it has not accounted for yet — the silent, merciless clutches of cancer. The World Health Organisation (WHO) states that it remains one of humanity`s mo

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now





Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter